Emerging markets investing: opportunities spread out

Less than two months into the year and emerging stocks have already strongly rallied, pulling in more than $17 billion (Dh62.5 billion) from foreign investors and leading to the MSCI Emerging Markets Index gaining 15 per cent (as of February 10). This stands in sharp relief to the outflow of more than $40 billion from emerging market equity funds in 2011. But, rather than get carried away by the surge, investors would do well to be wary of this low-quality risk rally and expect periods of fluctuation going forward, says an emerging markets investment professional. And that would mean to also realise that emerging markets are a long-term story.




"Yes, there will be periods of volatility," said Mark Livingston, investment director of emerging market equities, Fidelity Investments. "But the longer you look at it — and that means five to ten years — the more certain you can be that emerging markets will both be bigger as a percentage of overall market cap but generally a lot of those stocks will be high from where they are now."



In selecting such stocks for its three emerging markets funds — FF Emerging Markets Fund, Latin America Fund and the Emerging Europe, Middle East and Africa Fund — Fidelity takes a ‘bottom-up' approach, focusing on companies with high barriers to entry and with strong management and a high level of corporate transparency. Such stocks also have long-term growth with attractive valuation.